A tax which is applied to the value added by an organisation to a product. The value added is measured by the difference between what a company paid for a product and what it is able to sell the product for. Thus there are VAT inputs and VAT outputs. An input is the value of purchases which are subject to VAT from which the company can subtract from the value of its VAT outputs which are sales made. Very small organisations are VAT exempt and some types of products (like basic foods) are also VAT exempt.

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